Federal broadband grants would help level the playing field for California projects

The version of the federal omnibus farm bill that was approved by the U.S. Senate last week improves the chances of actually building broadband infrastructure in areas of California where no service currently exists. That’s assuming the lack of service can be documented and withstand challenges from competing providers who might claim otherwise, which is a separate can of worms.

The legislation, which still has to be approved by the House, allows the Rural Utilities Service (RUS) to give outright grants to pay for broadband projects, in addition to its existing loan program. Adding grants to the mix eliminates a problem faced by rural broadband start-ups: creating a credible business plan that can repay the total cost of construction out of operating revenues.

On a per household basis, it’s expensive to build facilities – particularly the fiber infrastructure that’s needed for the gigabit-class service referenced in the bill – in sparsely populated areas. The challenge is compounded by lower rural income levels that keeps revenue down and operating profits harder to achieve. Reducing the capital overhang – the bill allows up to 50% grant funding for a project – makes a sustainable business case much more achievable.

RUS loans largely go to rural utility cooperatives that have existing customers, capital assets and operational resources to build upon. Those kinds of co-ops, though, are vanishingly rare in California, where agribusiness is not generally based on multitudes of small farms, as in the midwest and south. Deploying rural broadband infrastructure here often requires starting a business from scratch, which usually makes it impossible to meet current RUS loan requirements.

One can argue that the federal government shouldn’t be paying for broadband projects at all. Fair enough. But if congress does decide to subsidise rural infrastructure, it should be in a way that recognises the differences in rural economies across the country.